This Can’t Wait for a Federal Solution : Quackenbush must act in home insurance crisis

If you ever doubt that campaign contributions can influence public policy, consider the case of California’s new insurance commissioner, Charles W. Quackenbush. Within minutes after being sworn in on Wednesday, the former assemblyman called for repeal of the law that requires insurers to offer earthquake coverage to homeowners. Quackenbush, a Republican, received $2.3 million from the insurance industry in his race for the post.

In seeking such “de-linkage,” lobbyists for the industry had failed to get support from both the previous insurance commissioner, John Garamendi, and the Legislature.

Big insurance companies and many smaller ones, all reeling from Northridge earthquake losses, have stopped writing new homeowner policies in order to avoid having to offer earthquake insurance. Those firms still writing policies can meet only about 25% of the need. All this poses a major problem for home buyers, who usually cannot get a mortgage unless they have insurance.

The best solution would be a national natural disaster insurance program administered by the federal government. Quackenbush favors this approach, but Congress has yet to pass the needed legislation. Until it does, there must be some interim arrangement in California if the home insurance crisis is to be eased.

The problem with Quackenbush’s current push for “de-linkage” is that he offers nothing new. Because of “legal reasons” that he did not specify, the commissioner plans to drop Garamendi’s proposal to use the California Fair Plan, the state-funded insurer of last resort, to offer stand-alone earthquake insurance. Quackenbush is leaving in place for now Garamendi’s earlier decision to expand Fair Plan homeowner coverage statewide and offer limited quake coverage to home- owners.

Quackenbush favors state legislation that would require insurers to continue serving those who have quake insurance. For those who presently don’t have coverage, he expects new, more creative insurance products to become available through market innovations.

Ironically, insurers sought the state earthquake coverage requirement in 1984 to limit their liability for earthquake damage under regular homeowner policies. Because they would offer only an expensive 10% deductible, the state briefly had an earthquake recovery pool. Ultimately, it was abandoned because of inadequate funding.

All the recent seismic activity in California certainly offers no incentive to insurance companies to take on earthquake risk. Until we have federal natural disaster insurance, Quackenbush should explore alternative short-term remedies. He must show he can be as friendly to consumers as he is to insurance companies.